Mercantilism reconsidered by Dani Rodrik

the mercantilist mindset provides policymakers with some important advantages: better feedback about the constraints and opportunities that private economic activity faces, and the ability to create a sense of national purpose around economic goals. There is much that liberals can learn from it.

Indeed, the inability to see the advantages of close state-business relations is the blind spot of modern economic liberalism. Just look at how the search for the causes of the financial crisis has played out in the US. Current conventional wisdom places the blame squarely on the close ties that developed between policymakers and the financial industry in recent decades. For textbook liberals, the state should have kept its distance, acting purely as Platonic guardians of consumer sovereignty. (via Dani Rodrik: Mercantilism reconsidered).

Public sector or oblivion?

During the Great Depression, more than 19 auto companies (similar to the number of banks today) were folded into the Big 3. The Big 3 lived to fight for another 70 years. In their death throes, the US Big Auto is likely to go the way European auto sector has gone – public sector or oblivion.

What is on the table

France, Germany, Canada, Italy and Australia (not in G7) are tethering on the brink – under the weight of their social security system, and most of their business is in the public sector. A geriatric Japan is dependent almost entirely on exports to these declining seven. Japan’s investment in India and China has been negligible.

Real low … real truth (seen an oxymoron like that?)

The real question – who will pay for this financial crisis?

Not the Americans! No siree. Definitely not. Neither the American super-rich or the American welfare-poor! Not the American tax payers or the American tax evaders? Not the American Whites or the American Blacks?

It is the Chinese, the Russians, Indians, Brazilians, and above all, the Africans, who will pay for these bailouts! They (BRICS+Africa) have done, what bankers call non-recourse lending! The Chinese, Russians, Indians, Brazilians and the Africans, have no recourse. Who will the Chinese go to, for redeeming their US$2 trillion? The bankrupt US of A?

Welcome to the real world.

US economic outlook

How can the West become competitive?

US auto is down – but not yet out. It will limp along for few more decades. The US is still the prime force in the computing industry – though not on the manufacturing side. US oil industry no longer dominates international markets the way they did in mid-20th century. The US nuclear industry faces increasing competition from a public sector French and Russian industry. The seemingly strong position of the US in agriculture is based on two aspects. Massive direct subsidies – of more than 8 billion dollars. And indirect subsidies of possibly another US$ 8 billion. Most of which goes to the 46000 farmers who account for 50% of the US agricultural production. The communication sector has again seen the erosion of US competitiveness – with the domination of GSM technology seemingly solid for another 10-15 years. The global financial markets were dominated by the US organizations in the past – but with the global financial crisis and the end to dollar dominance may see reduced clout for US firms.

Big Government ... Big oil ...

With such an economic outlook over the next 10-25 years, what the US leadership may focus on, is Arctic oil. Oil will remain a strategic asset only with high prices (slower production increase and faster demand growth) and if no other energy source appears. Oil finds in the Atlantic and Pacific republics may spoil the party – for instance, Cuban oil.

Much like the respite of the North Sea oil to Britain, Arctic oil may provide a temporary halt to the slide in US economic dominance. If the US can lay its hands on a significant part of it!

The other option is to nationalize the US economy. Like France, Germany and Italy. The economies of France, Germany and Italy are practically run by public sector monopolies – or subsidized behemoths, who make survival of competitors difficult by their ability to sustain losses – based on Government largesse.

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